On June 10, 2022, Pakistan will present its federal budget for 2022-2023. A number of new taxes measures are expected to be announced in the budget to raise additional income.
It has been learned that a number of withholding taxes would be removed or lowered in the coming budget.
The Federal Board of Revenue (FBR) will choose those withholding taxes that have lower revenue implications without jeopardising the goal of documenting as part of the budget planning process.
According to Brecorder, to document future withholding transactions, a new Directorate-General for Synchronized Withholding Agents System would be developed.
Withholding taxes cause inconsistencies will be reduced by the FBR, as all withholding taxes will be examined to see whether there are any distortions produced by income tax withholding, and adjustments will be made to correct them.
This will be accomplished by making modifications to guarantee that all withholding tax received is either claimed or reimbursed in the return filed in response to the tax demand.
Elimination of Taxes in budget 21-22
The government had eliminated multiple withholding taxes, including the tax on royalty payments to residents during budget 21-22 such as cash withdrawals, banking tools, money transfers other than cash, tax collection from persons remitting funds abroad via credit, debit, or prepaid cards, tax collection on domestic and international air travel, mineral extraction, tax collection by a stock exchange registered in Pakistan, tax collection on marginal financing by NCCPL, CNG stations, and tax collection on certain petroleum products.
Income Tax Ordinance
The Income Tax Ordinance of 2001 contained 38 withholding tax measures. This large number of requirements adds to the complexity and places an excessive strain on different withholding agents to comply. It also has an impact on a country’s ease of doing business rating. In the last budget, 12 withholding taxes were eliminated in an effort to improve company ease and simplify tax rules.
The Overseas Investors Chamber of Commerce and Industry (OICCI) advocated that the withholding tax (WHT) structure be overhauled and reduced from its current twenty-six rates to just five for filers.
Only inactive taxpayers should be subject to this tax. Alternatively, the 8% WHT rate on services is a minimum tax that applies regardless of the service provider’s actual taxable revenue. This tax effectively becomes an indirect tax, raising the cost of doing business for service providers; as a result, service tax should be flexible.
Withholding Tax Regime
The Withholding Tax Regime (WHT) is a worldwide phenomena, and it is the primary source of federal revenue received at the national level in Pakistan. The collection of withholding taxes, as well as the reliance on them, has increased throughout time. Various Withholding Taxes, which are distinguished by their adjustable and presumptive nature, collected Rs422(b) out of total Direct Taxes collection of Rs740(b) for the financial year 2012, accounting for 57 per cent of total Direct Taxes collection.
Since the imposition of direct taxes by governments and taxpayers on two counts, the withholding tax regime has been a feature of the tax system in some form or another:
- The government receives revenue on a consistent basis throughout the year to fund its expenditures and operations.
- Provides taxpayers with the opportunity to pay down their debts in affordable installments.
Many countries have been obliged to change their economies in recent years as a result of globalisation, in order to unify tax laws and align them with new trade and investment policies represented in free trade agreements. “Hang Together” is more relevant today than it has ever been. Neither countries’ borders nor their economies can be closed. Tax policies are also inextricably linked to foreign economies.
Due to the requirement for an entity to oversee and manage the Withholding Tax Regime in such a competitive climate, the Directorate General of Withholding Taxes was established by the Finance Act of 2008 under section 230A of the Income Tax Ordinance 2001.
